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Venture Capital and Private Equity Contracting, 2nd Edition by Sofia A. Johan, Douglas J. Cumming

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12

Preplanned Exits and Contract Design

This chapter empirically considers the role of preplanned exits (the investor’s initial strategy to sell the investee company via an acquisition or an IPO at the time of initial contract with the entrepreneur), legal conditions and investor versus investee bargaining power in the allocation of cash flow and control rights in entrepreneurial finance. We introduce a sample of 223 entrepreneurial investee firms financed by 35 venture capital funds in 11 continental European countries, and these data indicate the following. First, preplanned acquisition exits are associated with stronger investor veto and control rights, and a greater probability that convertible securities will be used, and a lower probability ...

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